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It’s lonely being a
thirty-something couple not owning a house. There aren’t many of us
around. When I mentioned to a colleague last week that we’d sold and
are now renting, she gave me that patronising “aah, bless!” look.
I’m still amazed at the
number of supposedly rational people who are obsessed with owning a
house. It’s this whole Englishman/Home/Castle equation. It’s not
only the contrarians talking about a downturn in house prices now;
since the last month’s credit market shake up, the mainstream has
provided daily commentary on whether house prices could drop in the
UK. Yet still, first prize in the game that I’m clearly losing, is
to own a house. Nobody ever seems to mention the mortgage that goes
with it. It’s the Housing Ladder, not the Debt Trap.
Adopting a stance against
the norm encourages some probing self-analysis. So I’ve thought
about this more than once and still I reach the same conclusion.
If I take my own house for
example, it costs me £1,600 a month to rent. A quick Google tells me
that a similar house in the same street will set me back £525,000.
Stamp Duty at 4% takes the lucky number to £546,000. Let’s say I put
down a 10% deposit (correct – that’ll be £54,600), then I’ll need to
finance £491,400. (I’m going to ignore legal fees, finance
arrangement charges, the cost of a survey, a HIP, land registry and
a local authority search but feel free to add them in if you like…).
So this £491,400 that I’m
financing, what’s a fair rate? Not to be unreasonable, shall we say
6.5%?
That means a repayment of
£3,318 or interest only of £2,662 each month. For the purposes of
comparison, let’s stick to interest only.
Just stop for a moment and
go back to that £54,600 deposit (again ignore any other costs). If I
put that into a high street savings account, I can get an AER of
6.4%. That’s £291 a month but don’t forget the tax, so let’s call it
£200 a month – because we’ll use up our ISA allowance…
So to live in my house as a
tenant costs me £1,600 – £200 = £1,400 each month. Had I bought it,
I’d be parting with £2,662 to cover the interest.
Annualised, I’m down, net,
about £16,800 as opposed to the £31,944 I’d be stumping up for
interest.
That means I need the value
of my house to go up 2.9% to be square. That doesn’t seem like much
considering the returns over the last ten years, but think about it:
I need to hope that my house increases in value by nearly
three percent by this time next year just to break even with holding
cash in the bank. That’s before considering any legal fees, finance
arrangement charges or maintenance costs. And to be honest, I’m not
so sure that I’ll get £491k at 6.5% in this market…
The IMF warns of a US-type
slump in the UK; the credit-pinch is not going anywhere soon - banks
aren’t lending to each other making credit more expensive; the
average dwelling in the UK is something like 8 times the average
wage…
I think I’m happy with my
cash in the bank. Actually, I haven’t been totally honest; it’s not
all in the bank. Quite a bit is in gold which is up 31% on this time
last year.
Anyway, I’d better go, I
have rising damp in the kitchen so I need to call my landlord.
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